Investment Column: Downturn does little to dim Hammerson

AG Barr; Quercus Publishing

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Hammerson

Our view: Buy

Share price: 387.6p (+20.6p)

For the uninitiated, the prevailing opinion seems to be that the retail sector is going to hell in a handbasket over the next quarter.

But while there are a number of distressed chains out there, they are more than outweighed by those growing profits, such as Next, Debenhams and Moss Bros. Certainly Hammerson, the operator of retail and office space in the UK and France, was espousing an upbeat view on the sector on an analyst trip to its retail assets in Reading, Didcot and Gloucester at the start of this week.

Lawrence Hutchings, the UK managing director of retail at Hammerson, said: "Consumers are increasingly polarising in their requirements for either a full leisure experience or a simple, convenient transaction. Retailers are consequently focusing on both regionally dominant centres offering retail, catering, and leisure, and our accessible, well-located retail parks."

He added that Hammerson's focus on quality assets and asset management for retailers had allowed the group to "maintain consistent strong demand for space within our portfolio". Supporting this view, it cited The Oracle shopping centre, Reading, as an example of its recent asset-management initiatives, with it touting how the shopping centre's technology, luxury and leisure on offer continues to attract growth brands.

The analysts at Espirito Santo Investment Bank, Panmure Gordon and Evolution Securities bought into the Hammerson pitch, with all reaffirming their "buy" recommendations with target prices ranging from 474p to 480p. Their positive stance reflects the combination of the high-quality mix of its retail and office portfolio, as well as its spending of £640m on developing or redeveloping sites in the UK and France at the moment.

That said, the group's pre-tax profits fell marginally by 0.7 per cent to £69.7m for the six months to 30 June. Perhaps more importantly for potential investors, though, Hammerson's shares now trade at a 31 per cent discount to Panmure Gordon's net asset value forecast of 532p for 2011. It also offers a prospective yield of 4.5 per cent, which seals the case for us.



AG Barr

Our view: Hold

Share price: 1,210p (+22p)

Can Irn-Bru continue to add a bit of fizz to an investment portfolio during these difficult financial times?

Yesterday, the company reported first-half pre-tax profits, before one-offs, of £16.2m, marginally ahead of last year's £16m, from turnover of £124m, up 4 per cent. If that doesn't look exactly sparkling it's worth noting that it came against a backdrop of a rotten summer and compares with a very good first half last year. As such, it represents quite an achievement. What's more, the dividend was raised by a tasty 8.1 per cent to 7.3p.

But what we really liked about yesterday's numbers was the 25 per cent fall in the company's debt, together with its pension fund moving into a small surplus. As such, AG Barr's balance sheet looks strong.

At a time of economic uncertainty it makes sense to seek out stocks with defensive qualities. AG Barr qualifies. Its sales may dip a bit during a downturn but fizzy drinks are an inexpensive treat. So it should manage, despite its competitive sector.

Having fallen with the market in August, the shares have bounced back strongly. They trade on a rather fizzy 17.6 times full-year earnings, a chunky 20 per cent premium to the food-and-drink sector. All the same, we'd hold.

Quercus Publishing

Our view: Buy

Share price: 125p (unchanged)

You have probably read The Girl with the Dragon Tattoo, or at least heard of it. You may not, however, have heard of Quercus, the publisher with rights to Stieg Larsson's books across the English-speaking world.

The group took the work of a dead author and helped to turn it into a global phenomenon. It is on such things that publishing empires are built – just ask Bloomsbury about a certain wizard. Yet the growth tailed off in the first half of the year as the economic climate bit and Larsson sales fell; the profits were up just £100,000 to £3.4m, and revenues down from £15m to £12m.

The company said it would target growth carefully, and, while it has concerns over the economic outlook, says its investments are set to pay off. The growth will not be as strong as in the past but the stock is worth a look. Management is suitably cautious and the release of the US version of Dragon Tattoo should reinvigorate sales.

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